Facts of the case

Since 1982, Nike Inc. sold a shoe called the Air Force 1. The shoe has a distinctive appearance and Nike owns multiple federal trademark registrations for the shoe's design. In July 2009, Nike filed suit against Already, LLC for selling shoes that were confusingly similar to the Air Force 1 shoe. In November 2009, Already counterclaimed and requested cancellation of Nike's trademark on the basis that it interfered with Already's ability to continue selling its shoes.

To avoid further litigation, Nike provided Already with a covenant not to sue. The agreement promised that Nike would not pursue any legal action against Already with regard to trademark infringement. The District Court held a hearing to determine whether the covenant caused the court to lose subject matter jurisdiction over Already's counterclaims. Following the hearing, the District Court determined that it no longer had subject matter jurisdiction and dismissed the case. The U.S. Court of Appeals for the Second Circuit affirmed the decision, holding that the counterclaim alone did not create a case or controversy before the court; therefore the court did not have subject matter jurisdiction over the claim.

Question

Did Already's counterclaim create a justiciable controversy sufficient to allow the District Court to exercise subject matter jurisdiction?

Already counterclaimed arguing that the Air Force 1 trademark was invalid in the first place.

Nike backed off and issued a Covenant Not to Sue.

Basically, an enforceable promise that it would never again claim that Already's current shoes were imitations of those shoes violate Nike's Air Force 1 trademark.

Now, Nike argues that this covenant means that the case is over and everyone can go home.

According to Nike, the only injury the trademark imposed on Already was a threat that Already would be sued for infringing that trademark, but that threat vanished when Nike dismissed its own suit and promised not to file a suit like it had against Already ever again.

Our precedents established that someone trying to end a lawsuit by voluntarily stopping what it was sued for doing must meet what we have called a formidable test, the voluntary cessation test.

Now, under that test, we have said, A party claiming that its voluntary compliance moots a case causes it to end has to show, and this a quote, that it is absolutely clear, the allegedly wrongful behavior could not reasonably be expected to recur.

The reason for such a rigorous test is clear.

You do not want parties who are sued to be able to stop their allegedly wrongful conduct and have the case against them dismissed and then start up all over again repeating the process if necessary until they accomplish their wrongful ends.

In this case, Nike's covenant meets the voluntary cessation standard.

As written, it is unconditional and irrevocable.

Beyond simply prohibiting Nike from filing suit, it prohibits Nike from making any claim or any demand.

It reaches beyond Already to protect Already's distributors and customers and it covers not just current or previous designs but in a colorable imitations of those.

It is, all things considered a very broad and categorical covenant promising not to sue.

Now, given the breadth of this covenant, it was up to Already to indicate that it has plans to create shoes that arguably infringed the Air Force 1 trademark but are not protected by the covenant.

In other words, Already needed to indicate that it still face the threat of a lawsuit in which Nike alleges that Already shoes are violating the Air Force 1 trademark.

But despite the opportunity and despite being asked, Already never asserted any such plans in the District Court, in the Court of Appeals or before us.

Instead, Already argued that it continued to suffer other injuries even with the covenant in place.

Now, the problem for Already is that none of the injuries it asserted is enough to keep the case in federal court.

For example, Already contends that so long as Nike keeps its trademark, investors will be apprehensive about investing in Already, but the fact that some investors will remain skittish about investing in Already even though there is no reasonable prospect that Nike can sue Already again, cannot be enough to keep the case live.

We have never held that such speculative concern of investors is enough to support standing.

Next, Already contends that given Nike's decision to sue in the first place, Nike's trademarks will now hang over Already's head.